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HMRC have released an update this month to their notice on Keeping VAT records. One of these changes relates to VAT simplified invoices which were introduced earlier this year as part of the simplification and harmonisation of VAT rules in the EU. Previously only retailers were exempt from providing full VAT invoices to unregistered businesses.
However the changes mean that any business issuing VAT invoices for £250 or less (including VAT) can issue simplified invoices.
What to include in a simplified invoice:
Your name, address and VAT registration number
The time of supply (date)
A description which identifies the goods or services supplied
The each VAT rate charged, the amount of VAT charged.
How does a simplified invoice differ from a full VAT invoice:
In addition, a full VAT invoice must include:
A sequential number based on one or more series which uniquely identify the document
The date of issue (if different from the time of supply)
The name and address of the person to whom the goods or services are supplied
For each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
The gross total amount payable, excluding VAT, expressed in any currency
The rate of any cash discount offered
The total amount of VAT chargeable, expressed in sterling
The unit price
The reason for any zero rate of exemption.
VAT invoices over £250
If issuing VAT invoices over £250, a full invoice must still be issued or a modified VAT invoice showing VAT inclusive rather VAT exclusive values.
Rebecca Taylor ACMA
Buying, selling or thinking of setting up a business always do your research, known in the trade as due diligence.
The holy trinity of due diligence is always the customers, the company, and the management.
The fundamental question is there a demand for the service or product? Don’t base it just on hunches or observations. Who are already out there doing it? For very little money Companies House or try Company Check can be a great starting point, it’s amazing what information you can get, even for a small company.
Don’t forget pricing, premium products and services command premium pricing try and pull off anything less will fail. The adage is true “You can’t fool all the people all of the time”.
What is the USP (Unique Selling Proposition) why would somebody want to trade with this business? Recognise it, flaunt it.
The company has to be sound, fit for purpose. There has to be clarity on costs, know the suppliers. Is there sufficient support, think about staff, IP, premises and systems, benchmarking, QA?
Thirdly, the management, no man is an island. The most undervalued asset in any business is the staff. It is often unlikely a person holds all the skills to perform all roles and responsibilities. Identify the key skills and resource.
Whether you are buying selling or setting up a business it always takes longer than first estimates and you can’t forecast for all events.
Covering the bases these are some generic points to be going on with.
|Customer||1. Market Research|
|2. Customers’ Profile|
|3. Competitors’ Profile|
|4. Managing Market Risks|
|6. Promotion and Advertising|
|Company||A. Running the Business|
|2. Key Suppliers|
|4. Managing Operational Risks|
|5. Legal Requirements|
|1. Start-up / Selling Costs|
|2. Breakeven Analysis|
|3. Funding options and Tax incentives|
|4. Cash Flow Forecasting|
|5. 5 Year Plan|
|6. Profit & Loss Account|
|7. Balance Sheet|
|Management||1. Job descriptions|
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. Previously I talked about the expenses that a sole trader can claim but now I am going to tell you about the expenses that you cannot claim.
Non allowable expenses for sole traders include:
Your own wages and drawings, national insurance contributions and pension contributions.
Childcare costs. These can only currently be claimed through a limited company scheme.
Subsistence. You can only claim for hotel and meal costs if you have an overnight business trip. You cannot claim for other meals including lunches, snacks and coffee.
Any business entertaining including entertaining clients and suppliers and hospitality at events.
The purchase cost of business premises and any costs relating to a non-business part of your premises. Also the cost of improving and altering premises and large equipment.
Motoring costs like fines, purchase cost and travel between home and work.
Repayment of loans, overdrafts and other finance solutions.
Some professional fees like the legal costs of purchasing property and large assets. Also the cost of settling tax disputes and fines.
Payments to clubs, charities, political parties.
Cost of ordinary clothing even if you only wear it for work.
Personal use including goods bought for personal use, the personal proportion of your home costs if you work from home, personal phone calls on your mobile phone etc.
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. None of us want to pay more money than necessary to HMRC so use this guide as a starting point to ensure that you are claiming all you can.
There are two main types of expenditure:
Capital expenditure is money spent on items (assets) that will have a useful life to the business of more than one year, for example premises, furniture, machinery, vehicles, tools, IT equipment.
These costs cannot be included when working out taxable profits. However you can claim Capital Allowances which give tax relief for the reduction in value of the assets.
Revenue expenditure is the allowable expenditure which is incurred in the general day to day running of a business. This can include:
Cost of goods bought for resale and cost of producing goods that you are going to sell or use in providing your goods or services to sell.
Employee costs including wages, employers’ National Insurance, benefits for employees, agency fees, subcontractors and training.
Business premise costs including rent, rates, utilities, maintenance and cleaning.
A proportion of your home costs if you work from home, including a proportion of the costs for rent, rates, utilities, mortgage interest, maintenance and cleaning. The costs should be apportioned based on how much of the home is used for business and for how much time if not exclusively. Or you can claim a fixed rate of £4 per week (from 2013-14).
Office running costs like phones, mobiles, broadband, email hosting, postage, stationery, printing, software and small office equipment.
Vehicles including the running costs (petrol, car tax, insurance, repairs, MOT and servicing). If the vehicle is also used privately, you can only claim for a proportion of the cost in relation to how much the vehicle is used for business mileage. Business mileage includes trips to the bank, post office, business meetings and networking events.
Mileage can be claimed instead of a proportion of the running costs of a vehicle if your turnover is below the VAT threshold when you acquired your vehicle. Mileage rates are 45p a mile for the first 10,000 business miles a year, then 25p a mile.
Travel, meals and accommodation including hotels when an overnight stay is required for business.
Business insurance including public liability, professional indemnity and employer liability.
Marketing and advertising including PR, free samples, networking, website maintenance costs, printed ads and brochures.
Magazine subscriptions if they are relevant to your business or are for client reading in a reception area.
Professional fees are usually allowable. Legal fees for drawing up contracts and terms and conditions are allowable as are your accountant’s fees for completing the year end accounts. Architect and surveyors fees are also allowable.
Bank, credit card and other finance charges including overdraft charges, hire purchase interest and lease payments.
If the expense relates to business and personal cost, only the business cost is deductible but also if the expense is dual purpose then no deduction is allowed. Always remember to keep detailed records of your transactions and keep copies of receipts and invoices as back up (these can be the originals or scanned copies on your computer).
A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts.
A business plan helps you to:
- clarify your business idea
- spot potential problems
- set out your goals
- measure your progress
But its no good unless you have business model that works as Doug Richards explains
Research by the national enterprise campaign showed that last year 484,224 businesses were started, compared to 440,600 in 2011.
- There were an estimated 4.8 million businesses in the UK which employed 23.9 million people, and had a combined turnover of £3,100 billion
- SMEs accounted for 99.9 per cent of of all private sector businesses in the UK, 59.1 per cent of private sector employment and 48.8 per cent of private sector turnover
- SMEs employed 14.1 million people and had a combined turnover of £1,500 billion
- Small businesses alone accounted for 47 per cent of private sector employment and 34.4 per cent of turnover
- Of all businesses, 62.7 per cent (three million) were sole proprietorships, 28 per cent (1.3 million) were companies and 9.3 per cent (448,000) partnerships
- There were 907,000 businesses operating in the construction sector – nearly a fifth of all businesses
micro: 0-9 employees, small: 10-49 employees, medium: 50-249 employees (updated October 2012)
The best bit of advice I have heard is this piece from Doug Richards ‘Take the Order’
Once you have a business model that works, then create a business plan, here is a link to some free plans to get you started http://www.bplans.co.uk/sample_business_plans.cfm